roommate's boss is insider trading

[Needan Anser in CA]

My roommate works at one of the biggest investment banks in the SF Bay Area. The manager of her department was asked to close his online trading account when he joined the company over a year ago. Not only did he keep the account open, he continuously trades stocks that are on the investment bank's restricted list. When my roommate noticed that her manager was not getting trade approvals or executions through the employee trading department, she searched the firm's backoffice system for an account in her boss' name and couldn't find one. She has seen him in the online broker's website placing trades and printing out his statements. The manager has even gone so far as to brag to his subordinates about the profits he's made on trades in stocks that are on the firm's restricted list. I'm a manager at a rival investment bank, and about 6 months ago my distressed roommate told me what she's observed and asked me for advice. She was scared because the Compliance Director of her firm's Legal department sent out a firmwide e-mail detailing the seriousness of insider trading, and she was sure that her manager was guilty. I assured her that it is indeed a very serious crime and the SEC and NASD don't mess around with a company's tolerance of their employees' indiscretions. I explained that if it were me, I would document everything as specifically as I could, including stock names, dates, times, conversations, etc. I also told her to print out the Legal Department's e-mail and go have a confidential sit-down with the person who authored it. I tried to stress that it was not her responsibility to pass any judgement, but it IS her responsibility to inform her Compliance Director, who would then investigate and assess the situation himself. She's afraid to report the manager because of the unabashed fraternizing that is so common in our industry. What if the investigation turns up nothing? My roommate is convinced the manager will undoubtedly know who ratted on him and fire her. On top of that, he has begun browbeating her and other employees regarding the department's performance. So now she also feels that if she turns the guy in, he'll deny the insider trading charge and claim he's a victim of sour grapes. It seems that other employees in the department aren't aware that what he's doing is illegal, and if they do know, they aren't talking about it. Does she have any confidentiality/whistleblower/employment rights? She was thinking about sending an anonymous letter to the Compliance Director and cc'ing the NASD and SEC. What should she do?

 

[ALawyer]

Her instincts are in the right place and the compliance director, SEC and NASD would pounce on the culprit in a second, and senior management of her firm should do the same.

Yes, the guy will deny the charges unless he knows denial would be futile. Thus she needs documentation -- the name of the other firm, the name in which the improper account is held, what trades were made, etc.

To lessen the claim that it is sour grapes, she should also document her own satisfactory performance. And waiting until the boss fires her is unlikely to enhance her credibility.